Final Results
600 Group PLC
21 June 2007
21 June 2007
THE 600 GROUP PLC
PRELIMINARY RESULTS FOR THE PERIOD TO 31 March 2007
HIGHLIGHTS
- The impact of the strategic review undertaken last year is reflected
in the significant improvement in the results for the year
- Strong order book for delivery in 2007/8
- Sales Revenue up 11% from £71m to £79m
- Operating profit before net financing income and tax of £0.6m
compared to a loss of £3.3m in the previous year
- Profit before tax of £2.4m compared with loss of £1.7m last year
- Costs incurred of £0.3m from discontinued business
- Strong balance sheet maintained including net funds of £4.4m
CHAIRMAN'S STATEMENT
We have continued the implementation of our strategic review and this has been
reflected in a further improvement in our performance during the second half of
the year. New product launches, increased sales and marketing coverage and an
improved supply chain performance have further contributed to the positive
progress made by the Group.
Market conditions
Our UK, North American and South African markets continued to improve during the
year. As in the previous year both our European and the Far Eastern markets
showed more limited growth.
Results
Order intake activity across the Group has continued at an encouraging level
during the period. Improvements in the performance of our supply chain have
resulted in an increase in revenue and the level of our outstanding order book
has been maintained as the benefits of the investment in sales and marketing are
being realised.
Sales revenue increased by 11% to £79m with the most significant increases
coming from our United Kingdom businesses.
The underlying level of net operating expenses increased by £1.8m following the
continued investment in sales, marketing and distribution throughout the Group.
The operating profit before net finance income and tax of £0.6m has improved
from a loss of £3.3m last year. Net finance income, principally due to the
impact of the Group's pension scheme, increased to £1.8m from £1.6m last year
resulting in the profit before tax improving to £2.4m compared to a loss of
£1.7m last year.
We continued to implement our strategic review during the year and incurred
costs of £0.3m in relation to discontinued businesses.
Net funds decreased by £1.4m from £5.8m to £4.4m. Net cash outflow from
operating activities was £0.9m and net cash outflow from investing activities,
principally capital and development expenditure, was £0.8m.
Dividend
As I stated in our last Annual Report and Accounts dividend payments will now be
related directly to our operating results. Although we have made good progress
during the year the board does not yet consider that the results allow the
payment of a dividend.
People
In December 2006 John Fussey retired as Group Finance Director and left the
Company after 13 years service to the Group and I should like to record our
thanks for his contribution during this period and our best wishes for the
future. He was succeeded by Martyn Wakeman who joined the Board at the beginning
of October 2006.
In April 2007 the Board appointed Martin Temple CBE as a non-executive director
and he will succeed me as non-executive Chairman of the Group when I retire as a
director at the end of July this year. Tony Sweeten will also retire as a
director at the same time, but will continue to be available to assist the Board
in a consultancy capacity until 31 December 2008.
On behalf of the board, I should like to record our continued appreciation of
the efforts of all our employees during the year.
Outlook
The growth in demand for machine tools and laser marking is forecast to continue
and, in the absence of any changes in our main markets, the medium term outlook
for the Group will be dependent upon the implementation of our strategic plans
and further improvements in our machine tool supply chain.
Following the improvements we made to our machine tool selling organisations in
the UK and North America we have strengthened our sales and marketing team in
continental Europe. Our laser marking business has benefited from the increased
investment in new product development and the new USA sales team is having a
positive impact.
As a result, I am confident that the Group will continue to maintain the growth
and improvement in performance trends seen during the last year.
Michael Wright
Chairman
21 June 2007
Enquiries:
The 600 Group PLC
Andrew Dick, Group Chief Executive
Martyn Wakeman, Group Finance Director Telephone: 0113 277 6100
Hudson Sandler
Nick Lyon Telephone: 020 7796 4133
GROUP CHIEF EXECUTIVE'S REVIEW OF OPERATIONS
Our key objective remains the capture of a greater share of the growth
opportunities that exist in the large and growing markets for machine tools and
laser marking. We will do this by focusing more closely on the needs of our
customers in our core areas of operation. By increasing the volume of machines
and services through our existing and developing distribution networks we will
continue to improve our profitability. The Group's strong financial position,
global brands and good design and product development capabilities, provide us
with a solid platform from which to achieve this objective.
Market background
The global market for machine tools enjoyed another year of expansion, its fifth
in succession. In particular, growth in the sector continues to be predominantly
driven by the rapid increase of manufacturing in China and other low-cost
economies, primarily in the Far East. During the year we have seen further
migration of international procurement programmes to these territories, which
has had a continuing impact on our industry and addressable markets.
The global market for laser marking continues to grow at a rate of between 5%
and 10% per annum, driven by the greater need for traceability,
anti-counterfeiting measures and the use of more environmentally friendly
marking processes.
Among our major markets the UK and USA have generally continued the positive
trends seen at the end of last year. The UK machine tool market, while
continuing the overall trend of outsourcing to lower cost countries, has
benefited from a favourable investment climate. The USA has grown strongly over
the last three years and we envisage that this growth will continue albeit at a
slower and more inconsistent rate than we have experienced recently. In
particular, we believe our new product ranges and strengthened distribution
network will contribute to increased sales. The Western European market was more
robust last year and we anticipate good levels of activity through into 2008.
Germany saw an improvement in activity towards the end of the year as the
benefits of a broader customer base were realised. The major countries in
Eastern Europe continue to experience steady growth. South Africa has once again
seen substantial growth as the country continues to invest in infrastructure
nationwide, partly in preparation for the 2010 World Cup.
Strategic development
The strategic review undertaken in 2006 clarified the Group's objectives for the
remainder of the decade. It confirmed that the Group has robust finances, very
strong brands and that one of our key strengths lies in the design and
development of machine tools and laser marking systems. It also highlighted that
we had significant scope for improvement in both marketing and customer service.
Our major target markets remain the UK, Central and Eastern Europe and North
America for both machine tools and laser markers. We will not, however, neglect
opportunities available to us in other parts of the world.
During the course of this year we have put the building blocks in place to
develop our core strengths so that we are well placed to grow our business in
the global market. We have significantly strengthened our teams in terms of
sales and marketing, quality and customer service.
In October 2006 we merged our Colchester and Harrison brands of CNC lathes. It
had been apparent for some time that there was duplication of costs in the
marketing of these brands and that they were often competing for the same
customer. Under the new Colchester Harrison brand we have the opportunity to
develop a wide range of high quality, competitive CNC machine tools. The
introduction of the new brand has been well received by our customers and the
transition has proceeded smoothly.
We continue to broaden and deepen our relationships with China and many of our
machine tools are now manufactured there under our full control. Additionally,
we believe that there will be significant opportunities for us to sell our
partner's Chinese machine tools through our world-wide distribution network.
Review of operations
United Kingdom
Machine tools
Our UK machine tools business, based at our main sales and distribution centre
in Loughborough, has been transformed into one of the UK's leading providers. We
are now offering a much wider but more clearly focused range of branded
products.
As already mentioned, we have merged our Colchester and Harrison brands so that
we can now offer customers a range of products clearly branded Colchester
Harrison, promoted by a single sales force and with a significant reduction in
stock duplication. Thus our Tornado, Alpha and Storm ranges are now sold through
a single distribution channel allowing Colchester Harrison to be seen as a
credible supplier of CNC machines throughout the UK and indeed world-wide.
600 Solutions offers customers access to a high quality range of machine tools
and turnkey solutions including Fanuc, Fuji and Toyoda-Mitsui. Since the year
end and in line with broadening our income streams and improving our after sales
offering to our customers, we announced (1 May 2007) the acquisition of the UK
parts and service business of Toyoda-Mitsui for a cash consideration of
£390,000. The Group can now provide a total support package to customers of
Toyoda-Mitsui's machine tools. Also in respect of Toyoda-Mitsui we successfully
completed the installation of an advanced manufacturing cell for Airbus UK. Our
strong relationship with Fuji has resulted in 600 Group becoming its distributor
throughout most of Europe with the sales and support being spearheaded from the
UK.
To further increase our market share preparations are now underway for us to
start the marketing of machine tools from our Chinese partner through a focused
600 DMTG Division with the brand name Dalian.
Within our lathes manufacturing facility at Heckmondwike we have continued to
focus on improving our quality and customer service. The supply situation from
our Chinese partner improves both in terms of the quality and volume of
machines. We do still have significant backlogs of orders across certain machine
ranges but we anticipate that this situation will be addressed during the course
of this year.
Laser marking
The past year has been one of excellent development for Electrox, our Letchworth
based laser marking manufacturing business. During the year we successfully
launched our in-house developed 'Raptor' range of laser markers. These
essentially harness the efficiency and reliability of the newly developed fibre
laser together with many of the necessary attributes of the more traditional
laser sources.
Major progress has been made on the development of our new electronics platform
as well as on the fully redesigned and upgraded software package. We believe
that our product platform is now industry leading in the laser marking area.
Further new products are on course for development this year which will keep us
at the forefront of the technology.
In the UK market itself we have seen exceptional growth albeit from a low base.
From the UK we have also established a series of independent distributors
throughout Europe and we have seen early signs of success there.
Overall unit sales volumes grew by 30% last year but this will not be fully
reflected in turnover as both costs and prices continue to decline.
Germany
During the latter part of the year we strengthened our management team and this
has started to have a positive impact on our operations. Germany is our second
largest addressable market behind the United States and it is important that we
improve our position here in order to capture a greater share of the market and
also to give us added credibility as we challenge for further business in the
growing markets of Central and Eastern Europe.
During the year we have been laying the foundations for increasing the sales of
our core Colchester Harrison brands in addition to planning the roll-out of the
distribution of machine tools on behalf of our Chinese partner DMTG. As in the
UK, we are creating a separate business under the 600 DMTG banner with the
Dalian brand name. Furthermore, we have started our marketing effort for the
Fuji brand of high quality production lathes.
The world's largest machine tool exhibition 'EMO' takes place in Hanover in
September of this year and will serve as both the showcase for our product
capabilities and launch a major initiative to increase business in this and
surrounding markets.
North America
Machine tools
In North America, which is our largest addressable market, we have been working
hard to develop aggressively an appropriate product strategy by sourcing our own
branded CNC machines both from the UK and the Far East. In parallel we have been
building our distributor network to ensure maximum coverage throughout the USA
and Canada. We continue to invest in the conventional, i.e. non CNC machine tool
market, through the exploitation of our Clausing brand and we are improving the
competitiveness of our brands in this area through additional sourcing from the
Far East. Although the market is declining slightly it continues to remain
attractive for the Group.
Following the year-end we announced (2 April 2007) the sale of our regional
distributor, Erickson Machine Tools, to its management for a consideration equal
to the net assets of the business. We then entered into an agreement with that
business to distribute our full range of machine tools in the states of Iowa and
Nebraska. This disposal is in line with our strategy of focusing on the national
distribution of machine tools across the whole of North America.
In Canada we have had major success within the automotive market acting as
selling agent for Fuji machines.
Overall, within North America the market has been buoyant over the last year. We
have seen some cooling off during recent months but believe that our new product
ranges together with strengthened distribution will allow us to continue to grow
successfully during the coming year.
Laser marking
We believe that North America offers us the greatest opportunity to grow our
laser marking business. Accordingly we have invested significantly during the
second half of the year to establish a wholly owned, professional regional sales
network supported by high quality applications and service engineers.
Additionally, we have established a number of industry focused representatives
to support us in those areas where we do not have our own regional sales office.
The organisation structure was largely complete by the end of the financial year
and early indications from the beginning of this year are especially
encouraging.
South Africa
Our diversified South African business has a strong portfolio of high quality
agencies across a broad range of sectors, which enables it to continue to
benefit from the country's significant investment in infrastructure. Many of the
products that the company distributes, such as the Fassi truck-mounted crane,
the Usimeca waste compactors and Altec aerial platforms for power supplies, are
linked to these infrastructure projects.
We continue to see significant growth opportunities in this market and believe
that our South African business with its network of distribution agencies is
well placed to capitalise on these opportunities.
Australia/New Zealand
The Australian market remains challenging and with its proximity to Asia the
manufacturing environment is tough. Our product portfolio gives us only limited
access to the booming extraction industries. To ensure the best use of our
resources we have switched our New Zealand operation to a third-party
distributor who has good coverage of the market. Through upgrading our product
portfolio and more aggressive marketing we believe there are still opportunities
to grow this business.
Machine Tool Accessories
Pratt Burnerd International, our market-leading producer of workholding systems,
made good progress during the year with a strengthened working relationship
between the UK and USA businesses resulting in improved growth and improved
profitability. In the UK we have made investments in the manufacturing process
to ensure that we can deliver additional specialist products, especially to the
growing US market. Pratt Burnerd America continues to develop well, aided by
demand for the Crawford Collets range of products.
Gamet Bearings, which produces super high precision taper roller bearings for
machine tools and similar applications, has maintained a strong order book
during the year benefiting from sales to the emerging markets, particularly
China and India. This is a specialist business with a high reputation in the
market and one of a limited number of companies that can supply these products.
The number of orders that the Group has received reflects this and as a result
the Group intends to make additional investment in Gamet Bearings in order to
satisfy the order book going forward.
Corporate social responsibility
The Group is fully aware of the social and environmental responsibilities and
each part of the business is tasked to identify opportunities in this regard.
Our laser marking business reduces environmental impact as it replaces much less
ecologically friendly forms of marking.
During the last year we have invested to reduce our overall energy consumption
and our energy bills are now lower when compared to the previous 12 months. Our
sales and service engineers are progressively switching to diesel cars.
Each operation is encouraged to play a supportive role within its own local
environment.
Outlook
The Group is starting to see the benefits of the investment in sales, marketing
and its supply chains. We anticipate another year of good progress with solid
underlying growth although turnover will be impacted by the disposal of our
Erickson business and the non-repeating of the exceptional £4.5m Airbus order.
We will continue to invest in the design and development of new products as well
as identify further sourcing opportunities to expand the range of products we
offer. This enhanced product portfolio will be marketed through a distribution
network which we will continue to strengthen. We will ensure that these products
meet our customers' requirements especially in terms of quality, service and
dependability.
Increased volumes of products leveraged through our global distribution network
will enable the Group to drive sustainable profit increases in future.
Andrew J Dick
Group Chief Executive
21 June 2007
AUDITED CONSOLIDATED INCOME STATEMENT
52-week period
ended 31 March 2007 52-week period ended 1 April 2006
Before Restructuring
Total restructuring (see note 3) Total
£000 £000 £000 £000
Revenue 78,666 70,993 - 70,993
Cost of sales (55,754) (51,924) (387) (52,311)
Gross profit 22,912 19,069 (387) 18,682
Net operating expenses (22,297) (20,479) (1,489) (21,968)
Operating profit/(loss) 615 (1,410) (1,876) (3,286)
before financing income and expense
Financial income 10,373 10,141 - 10,141
Financial expense (8,561) (8,574) - (8,574)
Profit/(loss) before tax 2,427 157 (1,876) (1,719)
Income tax charge (696) (429) - (429)
Profit/(loss) for the period 1,731 (272) (1,876) (2,148)
from continuing operations
Post tax loss of discontinued business (290) - - -
Total profit /(loss) for the 1,441 (272) (1,876) (2,148)
financial period
Attributable to:
Equity holders of the parent 1,382 (320) (1,876) (2,196)
Minority interest 59 48 - 48
Profit/(loss) for the period 1,441 (272) (1,876) (2,148)
Basic earnings per share 2.4p (3.9)p
Diluted earnings per share 2.4p (3.9)p
AUDITED CONSOLIDATED BALANCE SHEET
At 31 March At 1 April 2006
2007
£000 £000
Non-current assets
Property, plant and equipment 13,034 14,203
Intangible assets 2,433 2,072
Investments - 84
Employee benefits 15,570 7,400
Deferred tax assets 315 303
31,352 24,062
Current assets
Inventories 22,307 21,147
Trade and other receivables 19,479 15,740
Cash and cash equivalents 6,944 7,657
48,730 44,544
Total assets 80,082 68,606
Non-current liabilities
Employee benefits (2,915) (2,281)
Deferred tax liabilities (5,498) (3,003)
(8,413) (5,284)
Current liabilities
Trade and other payables (18,272) (14,633)
Income tax payable (80) (134)
Provisions (372) (388)
Loans and other borrowings (2,547) (1,809)
(21,271) (16,964)
Total liabilities (29,684) (22,248)
Net assets 50,398 46,358
Shareholders' equity
Called-up share capital 14,287 14,212
Share premium account 13,747 13,680
Revaluation reserve 3,148 3,397
Capital redemption reserve 2,500 2,500
Translation reserve (172) 843
Retained earnings 16,541 11,333
Total equity attributable to equity holders of 50,051 45,965
the parent
Minority interest 347 393
Total equity 50,398 46,358
AUDITED CONSOLIDATED CASH FLOW STATEMENT
52-week 52-week period
period ended 1 April 2006
ended 31
March 2007
£000 £000
Cash flows from operating activities
Profit/(loss) for the period 1,441 (2,148)
Adjustments for:
Amortisation of development expenditure 120 67
Depreciation 1,218 1,640
Impairment of goodwill 24 1,254
Net financial income (1,812) (1,567)
Profit on disposal of plant and equipment 40 (26)
Equity share option expense 14 31
Income tax expense 696 429
Operating cash flow before changes in working 1,741 (320)
capital and provisions
(Increase)/decrease in trade and other (4,602) 838
receivables
(Increase)/decrease in inventories (2,433) 2,903
Increase/(decrease) in trade and other 4,650 (42)
payables
Decrease/(increase) in employee benefits 30 (1,006)
Cash generated from the operations (614) 2,373
Interest paid (278) (170)
Income tax paid (8) (66)
Net cash flows from operating activities (900) 2,137
Cash flows from investing activities
Interest received 157 199
Proceeds from sale of plant and equipment 236 168
Purchase of plant and equipment (680) (520)
Development expenditure capitalised (548) (402)
Net cash flows from investing activities (835) (555)
Cash flows from financing activities
Proceeds from the issue of ordinary shares 142 -
Proceeds/(repayment) from external borrowing 151 (305)
Equity dividends paid - (2,274)
Reduction in non current asset investments 64 -
Reduction in current asset investments - 580
Net cash flows from financing activities 357 (1,999)
Net decrease in cash and cash equivalents (1,378) (417)
Cash and cash equivalents at the beginning of 6,718 7,127
the period
Effect of exchange rate fluctuations on cash (9) 8
held
Cash and cash equivalents at the end of the 5,331 6,718
period
NOTES
1. Basis of preparation
The 600 Group PLC is a public limited company incorporated and domiciled in
England and Wales. The Company's ordinary shares are traded on the London Stock
Exchange.
The Group consolidated financial statements incorporate accounts, prepared to
the Saturday nearest to the Group's accounting reference date of 31 March, of
the Company and its subsidiary undertakings (together referred to as "the
Group"). The results for 2007 are for the 52-week period ended 31 March 2007.
The results for 2006 are for the 52-week period ended 1 April 2006.
The Group financial statements have been prepared and approved by the directors
in accordance with International Financial Reporting Standards as adopted by the
EU (IFRS).
The preparation of financial statements in conformity with IFRS requires
management to make judgements, estimates and assumptions that affect the
application of policies and reported amounts of assets and liabilities, income
and expenses. The estimates and associated assumptions are based on historical
experience and various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis of making the judgements
about carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period, or in the period
of the revision and future periods if the revision affects both current and
future periods.
2. Audited consolidated statement of recognised income and expense
52-week period 52-week period
ended 31 March ended 1 April 2006
2007
£000 £000
Foreign exchange translation differences (1,241) 893
Net actuarial gains on employee benefit 5,375 9,244
schemes
Revaluation of properties - 3,397
Deferred taxation on above items (1,691) (3,010)
Net income recognised directly in equity 2,443 10,524
Profit/(loss) for the period 1,441 (2,148)
Total recognised income and expense for 3,884 8,376
the period
Attributable to:
Equity holders of the parent 3,930 8,295
Minority interest (46) 81
Total recognised income and expense for 3,884 8,376
the period
3. Net operating expenses
2007 2006
£000 £000
Net operating expenses:
Administration expenses before: 16,905 14,823
- reorganisation - 235
- goodwill impairment - 1,254
Total net administration expenses 16,905 16,312
Distribution costs 5,777 6,154
Other operating income (385) (498)
Total net operating expenses 22,297 21,968
In 2006 the total restructuring costs consisted of the reorganisation and
goodwill impairment amounts shown above, plus a £387,000 stock provision charged
through cost of sales in the income statement. They relate mainly to the
refocusing of the Group's French operation and the extension of its global
sourcing programme as part of the strategic review.
4. Financial income and expense
2007 2006
£000 £000
Interest income 157 199
Expected return on defined benefit pension scheme assets 10,216 9,942
Financial income 10,373 10,141
Interest expense (271) (170)
Interest on defined benefit pension scheme obligations (8,290) (8,404)
Financial expense (8,561) (8,574)
5. Cash and cash equivalents
2007 2006
£000 £000
Cash at bank 6,762 7,406
Short-term deposits 182 251
Cash and cash equivalents per balance sheet 6,944 7,657
Bank overdrafts (1,613) (939)
Cash and cash equivalents per cash flow statement 5,331 6,718
6. Reconciliation of net cash flow to net funds
2007 2006
£000 £000
Decrease in cash and cash equivalents (1,378) (417)
Reduction in current asset investments - (580)
Decrease/(increase) in debt and finance leases (151) 305
Decrease in net funds from cash flows (1,529) (692)
Net funds at beginning of period 5,848 6,617
Exchange effects on net funds 78 (77)
Net funds at end of period 4,397 5,848
7. Statutory accounts
The financial information set out above does not constitute the company's
statutory accounts for the period ended 31 March 2007 or the period ended 1
April 2006 but is derived from those accounts. Statutory accounts for 2006 have
been delivered to the registrar of companies, whereas those for 2007 will be
delivered following the company's Annual General Meeting. The auditors have
reported on the 2006 accounts; their report was unqualified and did not contain
a statement under section 237(2) or (3) of the Companies Act 1985.
8. Annual report and accounts
The annual report will be posted to all shareholders in due course and will be
available on request from the Secretary, The 600 Group PLC, 600 House, Landmark
Court, Revie Road, Leeds LS11 8JT.
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